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Full transcript

Bryan J Busch: On today’s episode of the Consumerism Commentary Podcast we mark the 30 days of Financial Literacy Month, and get answers to the most common credit counseling questions.

[music]

Bryan: Welcome back to the Consumerism Commentary Podcast. I’m Bryan J. Busch. My guest today is Kim McGrigg, the manager of Community and Media Relations for Money Management International, which has declared April Financial Literacy Month. Kim, thank you for joining us on the Consumerism Commentary Podcast.

Kim: Well, I’m really happy to be here today.

Bryan: Money Management International has declared April to be Financial Literacy Month. What are some symptoms of financial illiteracy, and what have you prepared to help people learn better?

Kim: Some of the symptoms of financial illiteracy are the inability for people to make decisions that are in the best interest of their family. What I mean by that is when someone is not fully informed about all of their options, they can’t make decisions that really benefit them for the long term.

I really feel like the biggest problem with financial illiteracy is that it really holds people back; it keeps them from reaching their potential.

Bryan: Since April is Financial Literacy Month, you’ve got 30 steps prepared on your website for people to improve their lives. What are you hoping a person will be able to accomplish in that 30-day period.

Kim: That’s a great question because just like a crash diet isn’t going to make someone healthy for a really long term period, I know that 30 days of financial literacy is not going to set someone up for long term financial success. However, what the 30-step program can do is to really get someone started on that path to financial wellness.

The idea is that after taking these 30 simple steps, you’re going to have a really good understanding of where you are today, where you want to go in the future, and some idea of how you’re going to get there.

Bryan: Could you give us a few examples of what a person would be doing on say, day 4, or day 16?

Kim: Absolutely. The first week of Financial Literacy Month is really about getting your financial house in order. Things like pulling your credit report, for example, making sure that there aren’t errors on that report, and if there are errors, how to fix them.

Step Three, for example, is talking about clearing the clutter because everyone would agree that financial clutter blocks a clear path to financial success. It talks about clearing the clutter, and then setting up a financial system.

The next couple of days, then, are really focused on where you are today. Again, you’re looking at those credit reports. You’re figuring out who you owe, how much you owe, determining your net worth. There are a lot of calculators, and things, that make this much simpler then it sounds.

From there, you start thinking about where you want to be. You know where you are, now where do you want to be? You talk about retirement savings, and emergency savings, all of those kinds of things. How to set realistic goals. How to remind yourself of those goals.

The last few days of Financial Literacy Month are really about setting up that plan. How are you going to move forward? For example, gathering a team that you might need to support you. Maybe it’s an accountant, maybe it’s a financial planner, or maybe it’s a credit counselor depending on your situation.

Bryan: Okay. Now when you talk about financial clutter, what sort of thing do you mean by that?

Kim: Financial clutter, I don’t know if you have ever experienced a time when you had a desk full of paper where you can’t find what you’re looking for.

Bryan: Oh, certainly.

Kim: I certainly have experienced that. A lot of times, that’s what people’s financial drawers look like, as well. They keep a shoebox full of receipts. It comes to be tax time, and you’re trying to prepare, and you can’t find what you’re looking for. These are all things that keep you from moving forward. It’s like, “This is too much trouble. I can’t make any sense of this.”

It’s talking about what do you need to have, what can you toss, how should you keep the important papers that you need to keep, do they need to be in a safe deposit box, or can they just be in a file in your desk drawer? Getting that all together, that organization, really just takes that barrier away so you can really start to think about things clearly.

Bryan: We talked with the founder of Debt Wise a little while ago, and he found that a majority of the time when he was analyzing people’s financial situations, they actually ended up with more debt then they thought they had.

Kim: Absolutely. I think that’s very true. We really do recommend that people take the time to figure out who they owe, and how much they owe. I would say from personal experience in talking to consumers that that’s the case; they’re not sure who they owe.

It’s really hard to develop a repayment plan if you’re not sure about those things. Coming to terms with your current situation is a really important part of this process.

Bryan: When this show is airing, April is almost half over. It’s not too late to start the 30-day plan, is it?

Kim: Absolutely not. April is the perfect time to talk about financial literacy, because it’s Financial Literacy Month. This program is available any time, because financial education is important all year round. Any day that you start the 30 days is a good day.

Bryan: Okay, great. It looks like you’ve still got some webinars going live through the end of April. Could you tell us about some of those?

Kim: We offer webinars all year long, actually, on a variety of topics about budgeting and money management. We have some about frugality. This month we’re doing some that are very specific to some of the steps of Financial Literacy Month.

For example, we have one coming up on Setting Goals and Getting Organized. We have webinars about your credit report and score. All of them are free, so I do really encourage people to take advantage of this very under utilized resource.

Bryan: It looks like there are also some free eBooks at the financialliteracymonth.com website.

Kim: We do. We have two free eBooks on the website. One is we had gathered a series of tips from consumers, their greatest financial tips, as well as from some financial experts. Some bloggers that you would definitely recognize have all contributed to this tips eBook. If you just want some little ideas on how to make some changes, that’s a great eBook.

The other one is the 30 Step Plan in eBook format, if you’d prefer to download it or print it out.

Bryan: Oh, excellent.

Kim: Yes, and those are free of charge, as well.

Bryan: You’ve got a section on your website called Ask The Experts.

Kim: Yes.

Bryan: If you don’t mind, I’d like to go over some of the more popular questions.

Kim: Yes, absolutely. I have been answering questions on the website for at least ten years. Over that time I’ve answered tens of thousands of consumer questions. It’s a really wonderful resource. It’s one of my favorite things that I do.

Bryan: Wonderful. To start with, what are my rights when it comes to debt collection? How can I make them stop calling me at work or at home?

Kim: That is one of the most frequently asked questions. What I say is that I have answered tens of thousand of questions, but in reality I’ve answered the same handful of questions thousands of times over. This is definitely one of them, because a lot of consumers feel very intimidated when they’re starting to receive collection calls.

What I like to tell consumers is that they absolutely do have rights. Under the Fair Debt Collection Practices Act, which anyone can read in full on the FTC website. That act allows a consumer to notify the debt collector in writing that they wish to cease further communication. When that collector receives that letter, they must comply.

The only time that they can reach out from that point, is if they are furthering the collection process. For example, if they are going to institute a lawsuit against you, then you will be notified of that.

Doing something that simple, of writing that letter and sending it off, is really all a consumer needs to do. That is including at work, because a collector’s not supposed to call you on the job if they know that your employer disapproves.

Bryan: Right. The letter doesn’t have to be in a certain format, or use magical words? You just express your intent clearly, I imagine, and send it to the right person?

Kim: Yes, that’s exactly right. There are examples of Cease and Desist letters on the Internet if someone’s unclear about what to say. You’re absolutely right, it just needs to say that under the Fair Debt Collection Practices Act, I have the right to request that you no longer contact me. It doesn’t have to be more complicated then that.

I do like to remind people that taking this action does not alleviate them of their responsibility, and that the collection process can escalate further. At least it will be much quieter. [Laugh]

Bryan: What is it important to know if I’ve co-signed a loan?

Kim: This is a good question that I love to get, because I feel pretty passionately about it. I really feel that there are very few situations where someone should co-sign a loan for someone else.

I know that that sounds… I realize there are no hard and fast rules, and there are exceptions, however the number of letters I’ve received from consumers with problems related to co-signing is really astonishing.

A lot of boyfriends signing loans for girlfriends, parents signing loans for children. What it basically means when you co-sign a loan is that you are responsible for the debt, period. The creditor doesn’t even have to seek repayment from the other person before they contact you. They’re going to try to get payment from who they think is more likely to pay.

I have a lot of people who are just really unsure about what their responsibility is when they sign that dotted line. I tell them that if they are not willing to repay the debt in full, assume total responsibility, then don’t.

There are other ways you can help someone if they need it. For example in a parent/child relationship, often this is about a car. I would say to the parent, “You could purchase the car, make the payments, and then collect from your child.” That protects you, your credit report. It makes you aware of everything that’s happening on the account. That’s one thing I would say.

If you’ve already co-signed a loan, to contact that creditor, make sure that you are getting statements. A lot of people aren’t aware that an account is in arrears until they get a call that they’re being sued.

I feel strongly about it because I’ve seen how much damage it can do. People just say, “How can I get out of it?” There is not a simple solution. You have to repay the debt.

Bryan: I believe the same is also true with your average checking or savings account. If a parent is listed as an owner, and they get a bounce or something, the bank can go after different accounts that the parent has.

Kim: If the accounts are linked, absolutely. I think that it’s really important, if you’re combining accounts in any way, that communication is so crucial, and that both parties are getting the statements.

Now when you have access to accounts online, it is so easy to see what’s happening, and to set up an alert the instant something’s going wrong. It’s amazing how many people are not taking advantage of that.

Bryan: Another popular question revolves around mortgage payments. What can a person do if they just can’t make them?

Kim: Absolutely. These are the hard questions to get because people are in really dire need of assistance when they’re facing foreclosure. It’s a very, very stressful process.

I like to tell people that there are many alternatives to foreclosure through loss mitigation. There are a lot of things that consumers might not be aware of, because they’re starting new programs all the time.

Unless this is something that you do all day, every day, it’s very, very hard to keep up with what’s available to you. Which program do you qualify for? Which one makes the most sense to you? Are there things specific to your state? It’s a complex situation.

I really encourage people to work with a HUD certified housing counselor. The appointment is free, it’s confidential. Just to have someone on your side that is really aware of everything that’s going on in housing. It’s their job to know what all the programs are, and what will work for your situation. That is the number one recommendation that I can give.

Bryan: Your organization deals, quite often, with credit counseling. This is maybe the number one question when it comes to all kinds of debt, really, but probably most of the time credit card debt. Should a person attack their savings account first just to make as big a dent as they can?

Kim: I actually just answered a question about that this morning. We definitely discourage people from borrowing or tapping their retirement money because if you cash your retirement money early, you have to pay taxes, plus a penalty for money withdrawn. It’s definitely not the wise financial move here. Not only that, then when you have to retire, and you don’t have the funds set aside, that’s going to be equally if not more stressful then what your facing today.

An emergency savings, for example, this woman wrote me today and she said, “Should I use my emergency savings to pay my credit card?” That’s not an easy question to answer. It depends on a lot of things. It depends on your job security. It also depends on what your interest rates you’re paying on your credit cards. I could see if you’re up in the 20%. You’re definitely not going to earn that in a savings account, so I could see how that would make more sense to you.

Another thing, it also depends on your comfort level. A lot of people really need to have a nest egg just to feel like they can comfortably recover from any kind of minor setback, a car repair, for example. Other people feel like they’ll be fine for a few months.

I really would like to talk to people about how do they feel, because so much about money—obviously, it’s all numbers and cents, but there’s a whole other side to it, and it’s all emotion. That part is very important to consider as well.

In the credit counseling industry, we really talk to a lot of people about what caused their situation. What do they hope to do in the future? It’s not just about taking down numbers. I know how much financial problems can affect a person’s entire life. It’s not just about their financial life. It impacts their ability to perform well on the job. It impacts their relationships with their friends and their family. It can even impact their health if they’re not sleeping well.

Bryan: How do you recommend people approach giving a loan to a relative or a friend, and do different levels of formality come into play when it comes time to make a loan or not?

Kim: This is a really common question of people who lent money, and now they’re having to be collectors themselves. Yes, I think there does need to be a level of formality in the loan process.

I know that people asking and giving loans all have the very best intentions. However, things happen, circumstances change. I believe because it’s dealing with money, to protect the relationship which is probably priceless, that you make the loan process a little more formal.

You would actually type up an agreement with someone. I am lending you this money. This is how and when it will be repaid. This is the interest rate, if there is one. Here are the steps that we will take if it is not repaid on time. That way there are no surprises on either side.

Bryan: What are some steps you recommend for people to repair their credit if they find it needs repairing?

Kim: I hear that word a lot from consumers, the word repair. I’ve been in the financial for a long time, and it conjures up some days when people would try to dispute things that shouldn’t be disputed, and all sorts of unscrupulous things. That’s really not the case today.

Today when consumers are talking about repairing their credit, they’re usually talking about improving it, or getting rid of errors on a credit report. That is something you do not need help with. That’s actually very, very simple.

Consumers are entitled to receive free copies of their credit reports from the three major bureaus annually from annualcreditreport.com. If there is an error on those reports, they can simply dispute it with an online form.

When they do it that way, the burden is on the creditor to prove that the item is correct. What will happen is the bureau will contact the creditor. The creditor will then have to prove that the item is, in fact, correct. If they are unable to do that, the item will be removed, and you will get an updated version of your report.

A lot of people mistakenly try to just call a creditor and say, “This is on my credit report. You need to take it off.” While that might work in some cases, in the most part, that’s not really using the system to your advantage.

When you fill out that dispute form, there’s a process. They have to investigate within 30 days. They have to send you an updated report. That’s really the way to go.

The other piece of advice when you’re talking about improving credit is to be patient, because as old information ages, and new positive information is added, your credit reports slowly improve.

I had a personal experience recently with a cable provider. I can’t tell you how many letter and phone calls later before the problem was resolved. A lot of these things take a lot of time and organization on behalf of the consumer.

Bryan: At the start of the Great Recession in 2007-2008, we noticed a lot of creditors doing things that didn’t really make much sense to the consumer. What are some reasons why a creditor might raise an interest rate, or close an account, or reduce a person’s limit?

Kim: I receive a lot of questions about that. I’ve been a great customer, why is this happening to me?

A lot of creditors had to really rethink who they were lending money to, and how much. Even if you were making payments on time, and as agreed, some times the terms change. Often times it has to do with how much credit is available to you.

Let’s say you have three credit cards with $5,000 limits. You might only be using $500 actively every month, so you would wonder why would they reduce my limits if I’m nowhere near them?

The creditor has to assume that you could max out those three cards if you wanted to. There’s always the potential for that. A lot of times, that is what will cause them to lower a limit. It does impact your credit score some, because the percentage of credit used versus credit available is taken into consideration. I’m not sure it impacts it enough if you have great credit for a consumer to be really concerned about that. However, sometimes a phone call to the creditor is all it takes. If that’s your situation, you might ask yourself, “Why do I need additional credit if I’m not even using it?”

Bryan: That’s a good point.

Kim: Yes.

Bryan: In a worst-case scenario, what are things a creditor can do if I don’t pay my debts?

Kim: When you miss a payment, and the creditors start calling, that can be a really very, very stressful situation. What a creditor can do really depends on state law. Each state sets laws as to what and how a creditor can collect on a delinquent account.

For example, some states permit a creditor to garnish wage and others don’t. Some states exempt just about all assets a debtor has from seizure to satisfy the payment for a debt, and other states can force you to sell some of your assets to satisfy a judgment.

I really recommend consumers find out what is and is not possible in their state.

Bryan: It’s based on the state that the consumer lives in, not the one that the creditor’s registered in?

Kim: That’s right. I encourage them to contact their local consumer protection office. You can get a list of those consumer protection offices on the Federal Citizen Information Centers website. Their address is consumeraction.gov. There they have a list to all of the local offices that can really help you understand what the laws are in your state.

Bryan: That’s great. I don’t think I’ve come across that one before.

Kim: Yes, it’s a wonderful resource. There’s things that we can tell people generally what happens. Generally, when you miss a payment the creditor will contact you, you’ll get a late fee, your interest rates possibly will increase, if it goes further they’ll send you to the collection department who will initiate collection calls and letters, fees continue to build up. If this continues, it will go into legal action, possibly, which is a judgment.

Above that, exactly what can happen to you at that point, it really depends on your state. For example, Texas is not a wage garnishment state, where Colorado is.

Bryan: I notice that you’ve been using the hash tag #finlit on Twitter.

Kim: Yes.

Bryan: Is anybody allowed to use that, or what’s going on there?

Kim: Oh, yes. I really encourage anybody to use that. I wasn’t going to do a hashtag this year, and I had some people reach out to me and say, “So, what’s our hashtag this year?”

Bryan: That’s fun.

Kim: Yes, it’s great. I have noticed that there are many people using it. I just think it’s a great way to pull together everything related to Financial Literacy Month. Yes, please, I encourage you to use it.

Bryan: Speaking of which, where else can we keep up with you online?

Kim: We are all over, and I would love to connect with people wherever they are already. If you’re a Facebook user, Money Management is on Facebook. The quick way to find us there is moneymanagement.facebook.org. It will redirect right to our page.

Bryan: Great.

Kim: I’m at moneymanagement on Twitter. We have a YouTube account, as well, and a Flickr account. Our advice column and blog are on moneymanagement.org.

Bryan: Thank you, very much, for joining us on the show today Kim.

Kim: I really appreciate that you had me here, and Happy Financial Literacy Month to you.

Bryan: That was Kim McGrigg of Money Management International. You can find all the tools and resources we talked about today at financialliteracymonth.com and moneymanagment.org. Join us again next week for more great personal financial advice and information.

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